The LGC market operates in a manner similar to that of the old Renewable Energy Certificate (REC) market. Liable Entities, generally electricity retailers, must acquire a number of LGCs equal to the target that is prescribed in legislation, and surrender them annually.

The target for 2018 is set at 16.06%, or 28,637,000 and will rise to 33,850,000 by 2020 following the agreement between the Abbott Government and Shorten Opposition in 2016 to reduce it from a peak of 41,850,000..

LGCs are created by large-scale renewable energy power stations and represent one MWh of electricity generated. There are more than 15 types of approved renewable energy sources including wind, solar, hydro and landfill gas.